Builder in Upper Macungie accused of deceptive mortgage advertising

Case settled, no consumers were harmed, attorney says.

The Federal Trade Commission cited this ad for The Villas at Highgate in… (FEDERAL TRADE COMMISSION,…)

June 18, 2014|Paul Muschick | The Watchdog

Zip. Zero. Nada.

If you were looking to buy a home and saw those words in big, bold print in an ad offering newly built homes for sale for no money down, your interest might be piqued.

A home builder that used the catch phrase in ads trying to sell homes in Upper Macungie Township instead caught the attention of federal authorities, who alleged in a lawsuit the ads were deceptive.

The Federal Trade Commission accused Heritage Homes Group of Bucks County and four affiliated companies of advertising low-cost mortgages while hiding fees and not disclosing, or adequately disclosing, vital information about the offer.

The companies, which share addresses in Warrington and Warwick townships, settled the case a few weeks ago by agreeing to comply with federal mortgage and lending laws. A six-figure fine was levied on three of the companies, but they don't have to pay because authorities said they can't afford to.

No homebuyers will receive restitution under the settlement.

Heritage Homes Group and the other companies — Heritage Building Group, Heritage Highgate, Heritage Partners and CJL Realty Management — were described in the lawsuit as having common ownership, officers, managers, business systems, employees and office locations and "operated as a common enterprise while engaging in the unlawful acts and practices."

They neither denied nor admitted wrongdoing in the settlement, which was approved by a federal judge June 6.

Their attorney, Walter Weir of Philadelphia, told me Wednesday he doesn't believe the companies did anything wrong and he doesn't believe the investigation was prompted by a consumer's complaint.

"As far as we know, no consumer was deceived about anything," he said.

The FTC disagrees.

"These defendants tricked consumers into believing they'd found an affordable mortgage with very favorable terms," Jessica Rich, the agency's consumer protection director, said in a news release last week.

The agency contends the "Zip. Zero. Nada." ads that Heritage Homes Group published on websites and in newspapers, fliers and mail were misleading because buyers were required to pay a good-faith deposit plus an annual fee and other costs at settlement.

The news release cited a newspaper ad for the Villas at Highgate development in Upper Macungie. The release doesn't say where or when that ad was published. In 2012 and 2013, The Morning Call published several advertisements for the Villas at Highgate that used the "Zip. Zero. Nada." slogan.

The ads touted specific monthly payment amounts, such as $1,198, but authorities said the ads failed to disclose or adequately disclose that to get that payment, potential buyers would have to obtain financing through the U.S. Department of Agriculture's Rural Development Loan Program, which required them to meet credit and income criteria.

The fine print in some online ads said "restrictions apply," with no other disclosures about the credit terms. In other print ads, the fine print mentioned the USDA program, that credit and income limits apply, and the existence of a good-faith deposit and fee, according to the lawsuit.

Weir told me other builders make the same offers in their ads of full financing through that program. He said some people responded to the Heritage offer and got 100 percent financing.

"I think the folks that run Heritage are a high-quality, high-character group of people and strive to do their very best for the consumer," Weir said, noting that settling the case was a practical choice.

"A business decision had to be made as to whether or not we wanted to fight the federal government over an advertisement that we were no longer using," Weir said. "We basically came to the conclusion that the cost of litigation just to vindicate our rights was not worth the effort."

The settlement included a $650,000 fine against Heritage Homes Group, Heritage Building Group and Heritage Partners. It was suspended "because of the operation's poor financial condition," the FTC said in the news release.

"I would be hard-pressed to explain to you where they got the number," Weir said. "It certainly was not based on any damage to any consumer."

The settlement prohibits the companies from misrepresenting mortgage terms, including the interest charged; annual percentage rate; existence or amount of fees or costs; and the monthly payment.

They are prohibited from misrepresenting relevant facts concerning the sale of homes and failing to disclose if a loan requires qualifying and financing through the USDA or another program that imposes credit and income limits.

The companies will be subject to record-keeping requirements and compliance monitoring for the next 20 years.

If you're in the market to buy a home, make sure to read the terms before you sign any paperwork. Don't rely only on what you see in an advertisement or are told. Look for any conditions in the fine print, and make sure you understand the full cost.

The Watchdog is published Thursdays and Sundays. Contact me at watchdog@mcall.com, 610-841-2364 or The Morning Call, 101 N. Sixth St., Allentown, PA, 18101. I'm on Twitter @mcwatchdog and Facebook at Morning Call Watchdog.